The U.S. Senate voted Tuesday to overturn a Consumer Financial Protection Bureau rule that would have prohibited class action bans from arbitration clauses. The Senate voted 51-50 to nullify the CFPB’s arbitration rule, with Vice President Mike Pence breaking a 50-50 tie. All but two Republicans voted in favor of the disapproval resolution, with Sens. Lindsey Graham of South Carolina and John Kennedy of Louisiana and all 48 Democrats voting against it.
“The CFPB’s arbitration rule was based on a flawed study, which academics, Congress and federal financial regulators claimed could be harmful to consumers and the economy. Rather than re-examine the rule and develop alternatives to mandatory arbitration, the CFPB chose an all-or-nothing approach, leaving Congress no choice but to overturn it,” Senate Banking Committee Chairman Mike Crapo, R-Idaho, said in a statement.
Crapo led the Republican charge against the rule on the Senate floor Tuesday.
The vote came after the U.S. House of Representatives voted in July to eliminate the CFPB’s rule under the Congressional Review Act, a 1996 law that allows Congress to overturn recently finalized regulations with simple majority votes in both houses.
President Donald Trump applauded Tuesday’s vote and said he intends to sign the resolution when it hits his desk.
“By repealing this rule, Congress is standing up for everyday consumers and community banks and credit unions, instead of the trial lawyers, who would have benefited the most from the CFPB’s uninformed and ineffective policy,” the president said in a statement.
CFPB Director Richard Cordray called the vote a “giant setback” for consumers that preserves a “two-tier” system of justice where consumers are shut out of court.
“It robs consumers of their most effective legal tool against corporate wrongdoing. As a result, companies like Wells Fargo and Equifax remain free to break the law without fear of legal blowback from their customers,” Cordray said in a statement.
The CFPB rule, released in July, would have barred companies from putting class action bans on their arbitration agreements, allowing consumers to sign on to class action litigation against credit card companies, payday lenders and other firms that have used such bans in the past.
The CRA also says regulators cannot issue rules that are substantially similar to ones that have been disapproved by Congress, making it impossible for the CFPB to come forward with a rule that takes the same tack in any future effort to rein in arbitration clauses.
“Forced arbitration takes power away from ordinary people and gives it to big banks and Wall Street companies that already have an unfair advantage,” Sen. Sherrod Brown, D-Ohio, said in a statement.
The rule had drawn the ire of the financial services industry as well as fellow regulators once Trump started putting his own regulatory team in place.
Both the Office of the Comptroller of the Currency, led by acting Comptroller Keith Noreika, and the U.S. Department of the Treasury released their own reviews of the CFPB’s rule and claimed that it would harm consumers without providing much benefit.
The CFPB rejected the arguments from those agencies, leading to a rare public fight among regulators.
“The elected representatives acted to stop a rule from going into effect that would have likely increased the cost of credit for hardworking Americans and made it more difficult for small community banks to resolve differences with their customers without achieving the rule’s goal of deterring future financial abuse,” Noreika said in a statement.
The U.S. Chamber of Commerce, the American Bankers Association, the American Financial Services Association, the Consumer Bankers Association and the Financial Services Roundtable filed a lawsuit to overturn the rule in Texas federal court in September.
That lawsuit is now moot.
“As we and others made clear in our multiple comments to the CFPB, the rule was always going to harm consumers and not help them. Today’s vote puts consumers first rather than class-action lawyers,” Rob Nichols, president and chief executive of the American Bankers Association, said in a statement.
The above reporting was done by Law360.